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The Rolling Stones and U2 didn’t shelter their intellectual property rights in the Netherlands so they could pay less tax on outgoing royalties, a representative for the bands said.
Jan Favie, the director of Promogroup and U2 Ltd., the two Amsterdam-based companies that manage the global intellectual property rights of the Rolling Stones and U2, respectively, denied at a June 12 Dutch parliamentary hearing that tax motives played any role in the artists’ decision to move their IP rights to the Netherlands.
The Netherlands is one of very few countries that doesn’t impose withholding tax on outgoing royalties, but Favie, during the two-hour hearing, repeatedly denied that this was why the Rolling Stones and U2 had sought his expertise.
“I have a special experience with related rights and there are not a lot of people who are knowledgeable about this,” he said, at one point decrying that he was having to convince the six-member lawmaker panel of his know-how.
Lawmakers interviewed Favie during a fourth day of parliamentary investigative hearings aimed at obtaining more insight into the role played by Dutch financial service providers in international tax avoidance in the wake of the Panama Papers revelations.
“We are not a trust company, an offeree company, a decoy company, or whatever other type of tax vehicle,” Favie said about Promogroup, the company he has helmed since 1997. “We are a unique firm that manages the rights of a unique band,” he said referring to the Rolling Stones.
Lawmakers, however, pushed back on Favie’s assertion that Promogroup added substantial value in the Netherlands, noting that the company employed just five people and that it outsourced most of its activities. “You patently deny that you’re not a letterbox company, and the question is: What value you are creating when you outsource everything?” Renske Leijten, a lawmaker for the Socialist Party (SP), asked.
Chris van Dam, a lawmaker for Christian Democratic Appeal, went even further. “You are adding nothing in terms of intellectual property here in the Netherlands; you are simply an administrative office,” van Dam said.
Van Dam also seemed to cast doubt on the truthfulness of Favie’s statements, which, like those of the other 15 witnesses and experts the panel has already interviewed, were made under oath. “There must be an incredible revenue stream in royalties with these bands and you admit that the Netherlands is one of few jurisdictions that offers the possibility of leaving outgoing royalties untaxed, but you say: ’No, that has nothing to do with this,’” van Dam said. “I find that very incredible.”
The fourth day of hearings also shed further light on the role resident trust companies and tax advisers play in the rerouting of profits through the Netherlands. According to a 2011 figure often cited during the investigative committee’s meetings, 4 trillion euros are shifted through the Netherlands annually.
In his testimony, Bartjan Zoetmulder, a partner at the Loyens & Loeff law firm, conceded that tax advisers design the building blocks of a tax structure that trust companies subsequently implement, and that tax advisers and trust companies correspond with each other daily and routinely provide each other with clients.
“If you want to use a Dutch company with the aim of, for instance, utilizing our treaty network, the first step is that you have to meet the Dutch rules of the game,” Zoetmulder explained, referring to the minimal substance requirements introduced under Dutch law in 2014 that aim to ensure that resident companies have real economic activities in the Netherlands.
Asked what he would advise a prospective client who didn’t have sufficient substance in the Netherlands, he said he would recommend that they enlist the help of a reputable trust company to meet these substance criteria. “If you review the list of criteria contained in the law, well, yes you could hire a trust company for this,” he said, adding that he would refer them to one of a small pool of trust companies the law firm regularly recommends.
Such tax advice, he said, could be obtained for a sum of 5,000 euros, while later testimony from Ronald Posthumus, business unit director at the trust company Vistra Netherlands, revealed that the services of a trust company carry a price tag of 10,000 to 15,000 euros.
In his testimony, Posthumus stressed that the wheeling and dealing of some local trust companies are a far cry from the standards upheld at Vistra Netherlands, and he repeatedly distanced himself from such players. “It’s not all bad, but there are parties in this sector that unfortunately do not fully comply with the law,” he said. “I think it is very annoying that we are being lumped together with companies that are no good.”
A hearing June 8 revealed that many Dutch trust companies fail to meet even the most basic of requirements under the Wet Toezicht Trustkantoren (Law Oversight Trust Companies) to perform adequate client due diligence and to adequately monitor transactions. Vistra Netherlands is different, Posthumus said, and added that Intertrust, the trust company he previously worked for, also played by the rules.
“We are a large international firm with a very good reputation that works with clients with a very good reputation. Using very aggressive structures brings about enormous reputational risks, and that’s something Intertrust doesn’t want and something the clients we work with also don’t want,” he said, referring to his previous employer.
Several of the Dutch investigative committee’s hearings have focused on the role played by trust companies in the rerouting of profits through the Netherlands. Although the June 8 hearing revealed that three out five local trust companies don’t perform client due diligence, lawmakers have so far failed to obtain admissions of guilt or shortcomings from trust companies. During the committee’s June 9 meeting, Gregory Elias, the chairman of the trust company United Trust Curacao, emphasized that his trust company is fully compliant with the Dutch rules.
“The way we do business is transparent,” he said.
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